I'm told that if I buy an MLP such as EPD that for the most part my distributions are tax deferred. I'm also told that if I die without selling that MLP that my heirs will likely avoid paying a lot of tax because their base becomes what the value is at the time they inherit it..Two questions; 1. How and when are distributions taxed & 2. How are taxes and distributions treated if inherited?

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

I'm told that if I buy an MLP such as EPD that for the most part my distributions are tax deferred. I'm also told that if I die without selling that MLP that my heirs will likely avoid paying a lot of tax because their base becomes what the value is at the time they inherit it..Two questions; 1. How and when are distributions taxed & 2. How are taxes and distributions treated if inherited?

Your first statement is only partially true. Once you have owned a successful MLP for awhile, your taxable income may catch up with and perhaps even surpass your payouts. It as a tricky area, and overall I think not worth the trouble and risk for anyone other than a very well informed and highly motivated investor. I bought them because they cratered in 2008. They have overall done well, some spectacularly, but so have many other issues and every time I understand a new aspect of taxation, including taxes that may be owed to a bunch of states where you have never lived or worked, but where the MLP has operations, I have another "oh-sh! moment

I speak from some experience with these things.

Ha

__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams

every time I understand a new aspect of taxation, including taxes that may be owed to a bunch of states where you have never lived or worked, but where the MLP has operations, I have another "oh-sh! moment

I hold my MPLs in a tax deferred account (IRA). Schwab, in particular, does the tax tratment and filing for me as all I have to do is send them the K-1 information. You may wish to investigate holding MLP's in tax deferred accounts rather (or along with) holding them in taxable accounts.

I hold my MPLs in a tax deferred account (IRA). Schwab, in particular, does the tax tratment and filing for me as all I have to do is send them the K-1 information. You may wish to investigate holding MLP's in tax deferred accounts rather (or along with) holding them in taxable accounts.

Is the only issue here unrelated business taxable income?

Ha

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams

I own a few MLPs. Tax time is not fun, especially if you trade them a lot, which I avoid doing. But the tax-deferred (for now) income makes it worthwhile because I am currently in the top tax bracket. I also like the fairly stable income provided by midstream MLPs, though the recent implosion of BWP was a good reminder that you can't take anything for granted.

Yes, from what I can tell. I don't hold enough of any one MLP in my IRA to get anywhere near the $1,000.00 of UBTI to have to report on. I would assume that if a MLP ever exceeded the $1,000.00 UBTI, then Schwab would just pay it out of my account. I have not sold any MLPs in an IRA either, but I assume any gains along the way or in a sale would be not taxable.

I did have a few MLPs in a taxable account but sold them all at a good profit within the last three years and paid the tax due.

While I like to invest in the energy business, I am pretty careful on choosing MLPs and make sure they are solid companies, transportation related and not in crude or natural gas production.

Yes, from what I can tell. I don't hold enough of any one MLP in my IRA to get anywhere near the $1,000.00 of UBTI to have to report on. I would assume that if a MLP ever exceeded the $1,000.00 UBTI, then Schwab would just pay it out of my account. I have not sold any MLPs in an IRA either, but I assume any gains along the way or in a sale would be not taxable.

I did have a few MLPs in a taxable account but sold them all at a good profit within the last three years and paid the tax due.

While I like to invest in the energy business, I am pretty careful on choosing MLPs and make sure they are solid companies, transportation related and not in crude or natural gas production.

Thanks aja8888.

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams

Last I looked at the tax ramifications of MLPs (if my memory is right) they usually distribute way more than is taxable income in most years. However, when you sell them, you have to go through a special calculation that's in the fine print attachments to adjust your basis (cost) in the partnership. Then part of the gain on the sale is taxable as ordinary income, and the rest as a capital gain/loss.

This thread has convinced me that I do not need to research MLP's any further.

Thank you.

__________________
If there's one thing in my life that's missing; It's the time I spend alone
Sailing on the cool and bright clear waters; There's lots of those friendly people
Showin me ways to go; And I never want to lose your inspiration

I think a small play would be better suited with an ETF for simplicity but with as much difference as there seems to be between performance a pure MLP holding seems much better..I just dunno if it's worth the headaches..

I think a small play would be better suited with an ETF for simplicity but with as much difference as there seems to be between performance a pure MLP holding seems much better..I just dunno if it's worth the headaches..

If taxes are your issue, you can buy a stock like KMI (kinder Morgan, Inc), which is the parent to the MLPs. KMI yields around 5% and is not subject to MLP tax handling. Kinder Morgan has been beaten up recently due to negative press about pipeline maintenance (maybe not accurate) and the stock is down 20%.

If taxes are your issue, you can buy a stock like KMI (kinder Morgan, Inc), which is the parent to the MLPs. KMI yields around 5% and is not subject to MLP tax handling. Kinder Morgan has been beaten up recently due to negative press about pipeline maintenance (maybe not accurate) and the stock is down 20%.

Latest Threads

Social Knowledge Community

About Us

This community was started in 2002 as an alternative to a then fee only Motley Fool. The focus of the discussions is on topics related to early retirement and financial independence. The community is moderated to ensure a pleasant experience for our members.